Economics of the Protest

If you haven’t noticed, some people are slightly more than discontent with the new president. Since the beginning of his steamroll straight to the Oval office, a diverse set of groupies have followed him around—the media, his supporters, and his anti-supporters.

The media has been calling out his every move, providing the ammunition for both his defenders and the opposition. His backers donated to his campaign and absorbed the costs of not only openly supporting him but of traveling to and engaging in the campaign rallies. The adversarial lot have accompanied those folks at the rallies, and have also absorbed the travel, poster board, and throat lozenge costs that go along with public remonstrations.

Though all have different missions, they are all forms of protest. They are going against the status quo, trying to change the way things are going. They are part of a competitive market in which costs are incurred in their search for profit. They are subject to the profit and loss system that provides feedback in the market process. Protests are a form of economic signaling in this market and should be looked at through an economic lens.

Peter Leeson shows how signaling works in his book, “The Invisible Hook,” where he exposes the hidden economics behind the “flamboyant, bizarre, and downright shocking pirate practices.” He explains the rationality behind the notorious “Jolly Roger” pirate flag using the economics of signaling. Though pirates were by no means pacifists, getting into violent altercations would be costly, as it would damage their ship, injure the crew, and potentially harm the booty they were seeking to acquire from their quarry. The skull and crossbones on the flag, which differentiated them from the less-petrifying merchant ships rocking state flags, basically communicated to their prey that they should surrender from the get-go or die a horrible death.

Guess what? There were a whole bunch of peaceful transactions because of it.

Signaling is used everywhere to help curb the imbalance of information between two market participants. In the market for labor, college degrees are the most obvious signaling devices. It helps employers distinguish between potential workers by showing who has more ability or a particular set of skills. Gambling is another way of signaling, in that it reveals information on the identity of the bettor by showing where his or her interests lie.

However, for signaling to be effective, it has to be trustworthy. To do this, people spend four (or eight, in my case) long and expensive years going to college. They attend conferences, join organizations, and take on poorly paid internships, to signal to potential employers that, “Hey, you can trust I’ll be a rock star employee. Just look at my record.” Likewise, the more money a gambler puts down, the information conveyed becomes more reliable. And you can bet that pirates held to their Jolly Roger promise if they met any resistance when stealing from merchant ships.

Similarly, protests are costly and time-consuming. Along with the costs of organizing large groups of people, protests often have to incur the social-stigma cost of protesting. Not only do people think this activity is a nuisance (especially when they hold up traffic and cause other social disruptions) but they also think protesting is ineffective.

But, they are effective. It just takes time.

Just because people are calling for immediate action and not seeing immediate results, doesn’t mean that the protest is not working. At political rallies, for example, the supporters often refer to the candidate as if he or she has already won the election. Supporters were already chanting “President Trump” long before November 8th. For years, gay rights activists called for the immediate legal recognition for same-sex marriages. For years, black Americans called for the immediate banning of segregation and discrimination under the law. For years, (like 72 years), the women’s movement called for immediate rights to education, work, the political arena.

Protests MUST have immediacy embedded in their mission. It doesn’t really work when you protest and cry out, “We’re not fine! ‘X’ needs to happen in five years time!” It has to be, “We want ‘X’ and we want it NOW!” This continuous and diligent sense of immediacy creates an effective signal that brings more and more people to the cause to which a tipping point emerges and the outcome is reached.

But just like a business in a competitive market, some fail and some succeed. Did the protest bring value to enough people to make it viable? Did it market itself effectively? Did it reach the point where its marginal benefits equal its marginal costs? The only way to find out is if they go through with it and experience the profit and loss mechanism available to them in a competitive market.

Protesters, like entrepreneurs, seek to exploit or correct a market failure. The success (or failure) is determined by the value and profit generated from this activity and indeed how well their signaling works. For the entrepreneur, profits are usually measured financially. For protestors, profits can come in the form of a court ruling, legislation, or any other particular outcome aligned with the mission.

So, just like we want entrepreneurs to keep on entrepreneuring, we should want protesters to keep on protesting.